IN BRIEF

<ul>
	<li>
	Just three double-storey Sky Homes sit at the top of The Waterline, each with its own private marina berth and rooftop terrace.
	</li>
	<li>
	Construction on The Waterline is complete, with the first residents expected to move in from mid-October.
	</li>
	<li>
	Sky Homes range from 282 sqm to 367 sqm and are priced from $3.65 million.
	</li>
</ul>

<hr />
Lewis Land has opened the first completed sky home for inspection at Harbour Shores, giving buyers their first opportunity to step inside one of just three double-storey residences crowning The Waterline.

Each sky home comes with its own private marina berth, rooftop terrace and Broadwater views, combining the scale of a larger home with direct access to the boating lifestyle that underpins the wider <a href="https://www.apartments.com.au/new-apartments/harbour-shores-biggera-waters-564-oxley-drive-biggera-waters-qld-4216">Harbour Shores</a> masterplan.

[smartcode_project:default project_id=113271 project_image_fid=366708]

Lewis Land Head of Development Michael Long said the inclusion of a berth with every Sky Home had become increasingly valuable as marina access across the Gold Coast tightened.

“Marina berths are becoming increasingly difficult to secure across the Gold Coast, so including one with every Sky Home makes this a genuinely rare offering,” Long said.

“The private 70-berth marina will accommodate boats up to 12 metres in length and is positioned just 2.5 kilometres from the Broadwater, placing the open ocean only 15 minutes away.

“Being able to step out of your home onto your boat is a rare luxury, and it’s something residents here can look forward to when it opens later this year.”

[smartcode_project:default project_id=113271 project_image_fid=366709]

The display opening comes as construction completes on The Waterline, with the first residents expected to move in from mid-October.

The three Sky Homes range from 282 sqm to 367 sqm and each feature three bedrooms, three bathrooms, multiple living zones, expansive kitchens with butler's pantries and large balconies taking in the Broadwater outlook.

Each residence also has three secure basement car spaces and additional storage.

“This is the first opportunity the Gold Coast has had to step into Harbour Shores and see, touch and feel what we’re bringing to life here,” Long said.

“There are only three Sky Homes within The Waterline, ranging in size from 282sqm to 367sqm, with each residence featuring three large bedrooms, three bathrooms, multiple living zones, expansive custom-built kitchens with butler’s pantry, and large balconies capturing Broadwater views.”

<img alt="Harbour Shores" data-entity-type="file" data-entity-uuid="bab65e10-4fab-45e1-92d8-fc56e2ab98ff" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-25%20at%202.00.16%E2%80%AFPM.png?VersionId=XT8q76LsPkw3cYTsvN3JfFDaPLud90PN" />

Residents of The Waterline will have access to a private pool, along with Harbour Shores' wider collection of amenity including a lagoon pool, social clubhouse, tennis court, gym, yoga facilities and sauna.

Lewis Land partnered with Studio Collective to furnish the completed display, with the interiors designed to demonstrate how the residences could function as permanent homes rather than simply as show apartments.

Studio Collective Director Melissa Park said the surrounding waterways informed the interiors, but in a more restrained way than a traditional coastal scheme.

“We drew inspiration from the canals and coastal surrounds, but our approach was to interpret that subtly through layered materials and a grounded palette of earthy tones, rather than literal coastal references,” Park said.

“We introduced hero moments of green and teal to reference the surrounding waterways, while mirrored elements help reflect natural light.

“The result is a residence that feels elevated yet comfortable, somewhere buyers can genuinely imagine themselves living, entertaining and unwinding.”

Sky Homes are priced from $3.65 million.

Lewis Land is also offering private marina berths with The Residences, its limited collection of three and four-bedroom villas positioned directly along the Harbour Shores waterfront boardwalk.

Three-bedroom villas are priced from $2.99 million, while four-bedroom residences start from $3.19 million.

Harbour Shores is being marketed by Colliers International.

[smartcode_project_cta:default project_id=113271]

Joel Robinson

Lewis Land opens sky home display as The Waterline completes at Harbour Shores

St Vincent de Paul Society Housing Australia has filed plans for a major mixed-use housing precinct on the southern edge of the North Sydney CBD, adding another significant proposal to a pocket around North Sydn​ey Station that is quickly becoming one of the LGA's busiest development zones.

The State Significant Development Application covers a 5,990 sqm site at <a href="https://www.apartments.com.au/new-apartments/1-19-mackenzie-street-lavender-bay-nsw-2060">1-19 MacKenzie Street and 211 Blues Point Road in Lavender Bay</a>, immediately south of Nor​th Sydney Station and between the commercial core and the lower-rise Lavender Bay Heritage Conservation Area.

Designed by Wardle, the proposal would deliver a new residential tower comprising 88 build-to-sell apartments and 19 affordable apartments, alongside a separate co-living building with 57 rooms and a building manager's studio.

It would also see the significant restoration and upgrade of St Francis Xavier Catholic Church, the adaptive reuse of the former school building, new parish facilities, retail, a new public square and around 1,000 sqm of publicly accessible open space.

<img alt="Vinnies North Sydney" data-entity-type="file" data-entity-uuid="d5dd7f87-a617-463e-b577-17541e01f0e9" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-26%20at%209.10.13%E2%80%AFAM.png?VersionId=4R8TsFN3P_LrrXO2HswTOIrx2blil8lh" />

The project is seeking a concurrent rezoning of the site to R4 High Density Residential and an increase in the maximum building height to allow a tower reaching RL120, or up to 20 storeys. The proposal was progressed through the NSW Government's Housing Delivery Authority pathway.

The build-to-sell component will be weighted toward larger apartments, with just six one-bedroom apartments compared with 31 two-beds, 43 three-beds and eight four-bedroom residences.

The 19 affordable apartments will comprise two studios, 15 one-bedroom apartments and two two-bedroom apartments, taking the total apartment component to 107 residences before the 58 co-living rooms are included.

<img alt="Vnnies" data-entity-type="file" data-entity-uuid="7d568ca5-cb90-4e18-96c6-d9795dba0c56" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-26%20at%209.10.05%E2%80%AFAM.png?VersionId=GY2R5M9VtQh0EKy1vajaea19PSLOPuRD" />

Wardle's design for the Vinnies site has sought to negotiate that emerging high-rise context while retaining the lower-scale character of MacKenzie Street and the adjoining heritage conservation area.

The main building adopts a three-storey podium and tower arrangement, with the podium aligned to the ridgeline and front setback of St Francis Xavier Church.&nbsp;Wardle has designed the podium with colonnades, seating, recessed entries and active ground-floor frontages, with sandstone-toned precast concrete and face brick referencing the materiality of the existing church.

The tower then steps back eight metres to the south and six metres to the north before rising in a sculpted form comprising four interlocking quadrants. Wardle has also introduced rounded forms and chamfered corners to reduce the tower's perceived bulk and improve view sharing with neighbouring development sites.

Resident facilities and outdoor areas are planned at the separation between the podium and tower at Level 3, oriented toward Sydney Harbour and the CBD skyline.

The tower itself will feature a glass reinforced concrete facade, with recessed balconies and deep reveals used both to provide shading and privacy and frame views toward the harbour and city. The lower levels take a different architectural approach, using brick and sandstone-toned finishes intended to establish a stronger relationship with St Francis Xavier Church. The Church itself will be conserved and upgraded for its continued use, while the former school building will be adaptively reused as part of the co-living component.

<img alt="Lavendar Bay" data-entity-type="file" data-entity-uuid="2d4418ad-90aa-4d49-af93-c80b140aea80" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-26%20at%209.09.47%E2%80%AFAM.png?VersionId=Kv4gzbsACaGvZSRuaqcfGC54jEJRXIDJ" />

&nbsp;

The proposal adds to an increasingly concentrated pipeline of residential development around Blue Street, MacKenzie Street and Lavender Bay.

Just west of the site, Central Element lodged plans earlier this year for one of the most significant residential developments proposed in Lavender Bay in recent years.

Central Element's SJB-designed scheme at 64-66 Lavender Street and 3-7 Middlemiss Street would deliver 163 apartments across two towers rising 23 and 32 storeys, replacing five existing apartment buildings containing 32 homes. The project also forms part of the Housing Delivery Authority pathway.

<a href="https://www.apartments.com.au/news/nsw/first-look-central-element-reveals-lavender-bay-apartment-plans?utm_source=chatgpt.com" rel="noopener" target="_blank">First look: Central Element reveals Lavender Bay apartment plans</a>

Immediately around North Sy​dney Station, another two significant proposals have emerged at 5 and 15 Blue Street.

Zurich Australian Insurance Properties is seeking to adaptively reuse its longstanding commercial building at 5 Blue Street, directly above North Sydney Station, rather than demolishing the structure.

Its SSDA proposes converting the building into a 14-storey mixed-use development with 62 apartments and 86 co-living rooms, together with ground-floor retail and a major refurbishment of Blue Street Plaza. The application is currently at the Response to Submissions stage.

<a href="https://www.apartments.com.au/news/nsw/first-look-zurich-targets-north-sydney-office-conversion-with-148-unit-proposal-above-metro-station">First look: Zurich targets North Sydney office conversion with 148-unit proposal above Metro station</a>

&nbsp;

First look: Vinnies files for 20-storey Lavender Bay apartment tower as North Sydney housing pocket heats up

When the opportunity arose for South Australian developer Palumbo to return to Kent Town, where it had previously delivered East Park Apartments and the East 
Rundle Apartments, it wasn't one the longstanding developer-builder was going to pass up.

The decision was quickly vindicated, with more than 30 apartments sold within the first month of launching <a href="https://www.apartments.com.au/new-apartments/royal-apartments-kent-town-2-8-north-terrace-kent-town-sa-5067">Royal Apartments</a> to the market.

The 206-apartment development, which will bring significant new supply to Adelaide's tightly held eastern city fringe, also gives <a href="https://www.apartments.com.au/developers/palumbo">Palumbo</a> the opportunity to bring new life to one of Kent Town's most recognisable watering holes.

[smartcode_project:default project_id=6109 project_image_fid=376073]

Royal Apartments incorporates the historic Royal Hotel, a venue Palumbo Managing Director Daniel Palumbo said has a longstanding connection with the local community.

"Everyone in the area has history with the Royal Hotel," Palumbo told Apartments.com.au.

"It was quite an active pub and social gathering place for locals. We want to bring it back to its former glory."

[smartcode_project:default project_id=6109 project_image_fid=376072]

The wider development will comprise two residential towers alongside the restored hotel, sitting on North Terrace opposite the Adelaide Park Lands.

For Palumbo, the project also marks a return to familiar territory.

The developer completed East Park Apartments next door more than a decade ago and jumped at the opportunity to develop in Kent Town again when the Royal Hotel site became available.

"The opportunity emerged, and we moved to secure the site," Palumbo said.

"We were approached by the previous landowner, who said they had extensive commitments in Sydney and weren't in a position to deliver the project.

"We took over the site and within six months recut the design scheme to be more in keeping with the type of development we want to bring to Adelaide.

"Now we're on the market and those changes have really resonated with local buyers."

That has translated into a strong start to sales, with 33 apartments transacting in the project's first 35 days.

Palumbo said the early purchaser profile had been consistent with the group's traditional focus on owner-occupiers rather than investor-led apartment stock.

"Local owner-occupiers have always been our market," he said.

"There are always some investors, but we've never developed what would be called traditional development stock. Owner-occupiers are very much our market."

[smartcode_project:default project_id=6109 project_image_fid=376068]

The buyer mix has been diverse so far, with downsizers and younger professionals both accounting for a significant portion of early sales.

South Australia's current stamp duty settings, which allow&nbsp;eligible homeowners in South Australia aged 60 savings of up to $103,830 on stamp duty when they downsize to a new property valued at up to $2 million,&nbsp;have helped encourage downsizer activity, while younger buyers in their late 20s and early 30s have been attracted to the opportunity to live immediately outside the CBD while still being able to walk into the city.



Location has been a major part of the proposition for both buyer cohorts.

[smartcode_project:default project_id=6109 project_image_fid=376075]

Royal Apartments sits on North Terrace directly opposite the Adelaide Park Lands, with residents able to walk through the parklands toward the East End, Rundle Street and Rundle Mall.

Apartments have been positioned to capture views across the parklands, Adelaide skyline, Botanic Gardens and Adelaide Hills.

Palumbo believes the scarcity of developable land along this section of the Park Lands makes the site particularly difficult to replicate.

"There's very few allotments on that side that can be developed," he said.

"If this location was in New York and you were sitting on Central Park, you'd be talking about a $60 million apartments."

Royal Apartments will offer a broad mix of residences, ranging from one-bedroom apartments through to four-bedroom sub-penthouses and penthouses.

Current listings include one-bedroom apartments from $680,000, while larger three and four-bedroom residences are priced around $2.5 million.

Residents will have access to a swimming pool, gym, barbecue and recreation areas, residents' lounge and dining space, and a communal deck.

[smartcode_project:default project_id=6109 project_image_fid=376067]

The apartments will feature generous balconies, while secure parking, bicycle storage and storage cages will also be provided.

A porte-cochère-style arrival and drop-off area has also resonated with buyers, particularly those attracted to being able to walk into the CBD during the day while retaining secure vehicle access at home.

Palumbo is acting as developer, architect and builder on Royal Apartments, continuing the vertically integrated model it has used across its South Australian portfolio.

The group was also behind the $150 million Sofitel Adelaide, the 251-room five-star hotel and residential tower which opened in 2021.

Palumbo said Royal's launch had come at an interesting time for the broader Adelaide apartment market.

Buyer confidence had initially been impacted by uncertainty surrounding the Federal Budget and broader economic conditions, but Palumbo believes sentiment is beginning to improve against a backdrop of significant investment flowing into South Australia.

He pointed to increased activity across defence and resources, including Olympic Dam, as potential long-term drivers of the state's economy and housing market.

"Money is starting to flow into Adeliade, significant amounts as Adelaide bucks the trend of the rest of the country.," Palumbo said.

"There's a lot of activity in the economy over the next decade. I think more investment will come into this market."

Early works on Royal Apartments are expected to commence this year, with major construction activity and cranes anticipated on site from early next year.

[smartcode_project_cta:default project_id=6109]

Palumbo's return to Kent Town strikes early chord with buyers

Go-to builder-developer <a href="https://www.apartments.com.au/developers/graya">GRAYA</a> is continuing to bulk out its already impressive and diverse apartment portfolio across South East Queensland. Their latest milestone is securing development approval for Silk, its boutique riverfront apartment development in St Lucia.

The approval clears&nbsp;the way for the team to begin construction planning for the 22-residence project.

<a href="https://www.apartments.com.au/new-apartments/silk-st-lucia-16-18-sandford-street-st-lucia-qld-4067">Silk</a> will rise 15 levels from an 810 sqm site at 16-18 Sandford Street, occupying a prominent bend of the Brisbane River with a prized northern aspect across Orleigh Park toward the Brisbane CBD.

The approved scheme will comprise 16 split-floor and six full-floor residences, continuing GRAYA's move into larger-format apartment developments targeting Brisbane's prestige owner-occupier market.

The project has been designed around the site's broad river frontage and dual-direction views, with GRAYA prioritising larger residences, privacy and outlook over apartment yield.

<img alt="Silk St Lucia" data-entity-type="file" data-entity-uuid="aa5c2349-f96c-4914-a812-1f2cd6827af8" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-26%20at%208.25.44%E2%80%AFAM.png?VersionId=WY0vEU_7vYjeRJKQHiCwFdMxu8PvFh52" />

GRAYA Co-founder and Chief Executive Officer Rob Gray said the project had been shaped around local homeowners wanting to remain in St Lucia without maintaining a traditional family home.

"St Lucia is one of those suburbs people do not want to leave," Gray said.

"They know the river, the trees, UQ, the golf course, Toowong and Indooroopilly, and that familiarity is hard to replace.

"True riverfront opportunities here are exceptionally scarce. What we have designed at Silk is a way to stay in the suburb people love, with the scale and privacy of a private home and far less to maintain.

"This is not typical apartment product. It is a proper home on the river, and that is exactly what this market has been missing."

The approval comes as new apartment development continues to increase across the St Lucia and neighbouring Toowong corridor, although direct riverfront sites remain considerably more tightly held.

GRAYA Co-founder and Managing Director Andrew Gray said securing the approval had removed a significant element of development risk from Silk.

"Genuine riverfront sites of this quality in St Lucia are not something that comes up regularly," Gray said.

"The approval removes a substantial layer of execution risk, and the location underwrites demand in a way very few inner-city sites can.

"The fundamentals here are as strong as anything we have assessed in Brisbane."

<img alt="Silk St Lucia" data-entity-type="file" data-entity-uuid="d0f3d734-65e1-48e8-8ed3-2e0715ffcdd9" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-26%20at%208.25.56%E2%80%AFAM.png?VersionId=sOLSs_jdHkXLWbBKzRyayf5BfTb2vPsD" />

Silk will see GRAYA return to a stretch of the Brisbane River where it already has recent construction experience. The vertically integrated group recently completed ARC in neighbouring Toowong as builder for developer Spyre, delivering the riverfront project on a constrained site.

GRAYA will take a different role at Silk, controlling the project from design and development through construction and aftercare under its vertically integrated model.

The development will include a gym and resident leisure areas at ground level, integrated with the river's edge.

Silk joins a growing pipeline for GRAYA across Brisbane and the Gold Coast, which includes Enclave, The Gallery, Coral and Ripple.

The developer-builder has also recently lodged plans for its largest project to date, <a href="https://www.apartments.com.au/new-apartments/the-silo-19-chester-street-newstead-qld-4006">The Silo</a>, a proposed <a href="https://www.apartments.com.au/news/qld/graya-buys-frasers-newstead-site-plans-the-silo-between-james-street-and-gasworks-precincts">$700 million mixed-use development</a> in Brisbane's James Street precinct.

Silk is expected to predominantly target local owner-occupiers and prestige buyers seeking a permanent riverfront home in Brisbane's inner west.

Registrations of interest are now open, with further details on the project and construction program to be released as it progresses.

<hr />
<h2>SILK PROJECT FACTS</h2>

Developer-builder: GRAYA

Project: Silk

Location: 16-18 Sandford Street, St Lucia

Apartments: 22

Built form: 15 levels

Site: 810 sqm riverfront holding

Mix: 16 split-floor and six full-floor residences

Status: Development approved

Next step: Construction planning underway

[smartcode_project_cta:default project_id=152168]

GRAYA greenlit for riverfront St Lucia apartment development, Silk

Abadeen has released the whole-floor penthouse crowning its recently completed <a href="https://www.apartments.com.au/buildings/park-residences-cremorne-2-sutherland-street-cremorne-nsw-2090">Park Residences</a> development in Cremorne, bringing the near-300 sqm residence to market for the first time.

Occupying the entire top floor of the boutique Lower North Shore development, the penthouse includes 221 sqm of internal living and a 74 sqm wraparound terrace, with a prized north-facing aspect taking in views across Middle Harbour.

The residence has been completed and fully furnished following a collaboration between Abadeen Executive Chairman Justin Brown and internationally recognised interior designer Jack Freeman, Founder and Managing Director of FREEMAN &amp; CO.

<a href="https://www.apartments.com.au/developers/abadeen">Abadeen</a> and Freeman approached the penthouse as a finished home, sourcing furniture, artwork, lighting and objects from Australia and overseas.

[smartcode_project:default project_id=114246 project_image_fid=378718]

Pieces from Parisian design house Pierre Augustin Rose sit alongside contemporary artworks and bespoke lighting, with Freeman drawing on recent visits to PAD Paris and Salone del Mobile Milano for the final collection.

Brown said the aim was to create a penthouse that felt more like a large-scale private home than a traditional apartment.

"The experience begins the moment the lift doors open. You're welcomed into an elegant dining room before the home opens into an extraordinary living space framed by sun-drenched harbour views.

"Every time someone walks through the front door they pause. It's not just the view, it's the incredible sense of space, the warmth created by the northern sunlight that fills the interiors, and the way every room connects so effortlessly.

"It has all the proportions of a luxury home, while delivering the effortless lifestyle and personalised experience of living in a world-class six-star hotel, combined with the simplicity and convenience of apartment living."

[smartcode_project:default project_id=114246 project_image_fid=378713]

A secure lift provides exclusive access to the penthouse level, opening to a dedicated arrival foyer and dining area before the residence expands into its main living and entertaining spaces.

Floor-to-ceiling glazing runs across the northern side of the home, connecting the interiors with the terrace and Middle Harbour outlook.

The penthouse also features a fireplace and substantial chef's kitchen, while the wraparound terrace has been designed to accommodate both everyday outdoor living and larger-scale entertaining.

[smartcode_project:default project_id=114246 project_image_fid=378720]

Freeman said the interiors had been deliberately kept restrained to complement the scale, natural light and outlook already established by the architecture.

"The penthouse is a serene study in quiet luxury," Freeman said.

"The interior pairs soft, sculptural forms with warm timber, pale stone and a restrained neutral palette. Curated artwork and metallic accents add depth, while abundant natural light creates a calm, effortlessly refined atmosphere. In my world, less is always more."

Freeman said the approach was centred around collecting individual pieces rather than simply decorating the apartment.

"Every material, every object and every piece of furniture has been curated with intention. I am a true believer in collecting versus decorating.

"The architecture already provided extraordinary natural light, remarkable volume and an uninterrupted connection to Middle Harbour. Our role was to complement those qualities with unique one-of-a-kind pieces of fine art and collectible design sourced from recent travels around the world."

[smartcode_project:default project_id=114246 project_image_fid=378694]

Among the collection are solid bronze sculptures by Lorenzo Quinn, alongside a curated crystalware collection and pieces sourced from international design fairs.

Park Residences sits opposite Cammeray Golf Club, Cammeray Croquet Club and Grand Slam Tennis Cammeray, around 300 metres from Neutral Bay Village and its established collection of restaurants, cafés and retail.

Brown said the combination of a whole-floor floorplan, northern aspect and proximity to Neutral Bay was becoming increasingly difficult to find on the Lower North Shore.

"Completed whole-floor penthouses with a sun-drenched north-facing aspect and sweeping Middle Harbour views are exceptionally rare," Brown said.

"Add a quiet position opposite golf, croquet and tennis facilities, a level walk to Neutral Bay Village and only minutes to the CBD, and you have a lifestyle that's incredibly difficult to replicate.

"This is a home that offers the privacy and generosity of a luxury residence together with the convenience of one of Sydney's best-connected harbourside locations."

The penthouse will be exclusively marketed by SRM Residential.

[smartcode_project_cta:default project_id=114246]

Abadeen unveils penthouse at Park Residences in Cremorne

National Australia Bank (NAB) has brought forward the timing of the first RBA cash rate cut by three months.

NAB is now expecting a cut in February, in line with ANZ and Westpac, having initially thought a cut wouldn't come until May.

Commonwealth Bank, the nation's largest lender, still thinks the first cut will come in December.

NAB changed its call following the August monthly inflation figures that were released at the end of September, showing it had dropped to 2.7 per cent.

"The risk has been skewed to a first cut earlier in 2025, and today’s change acknowledges the balance of risks has likely shifted sufficiently for the RBA to feel comfortable cutting a little sooner than we earlier expected," NAB noted in its latest update.

They added that the cadence of the cuts may be faster than its central profile.

"Domestic inflation pressures are cooling, but only gradually, and we continue to expect the conditions for a cut will not be in place this year.

NAB believes the easing cycle will end at 3.1 per cent by early 2026, which is five cuts from the current 4.35 per cent cash rate.&nbsp;

CBA also thinks 3.1 per cent will mark the end of the cutting cycle, while Westpac is forecasting 3.35 per cent, and ANZ is the most pessimistic at 3.6 per cent, which would be just three interest rate cuts.

<h2>What would a rate cut in February look like for borrowers?</h2>

According to&nbsp;<a data-saferedirecturl="https://www.google.com/url?q=https://link.mediaoutreach.meltwater.com/ls/click?upn%3Du001.IVvjJ-2BPT0A8C3VxtqKc6e3bj5hBuw27WFEYqovsYs7kPsgFulYrdOzeP8gI7CybJOya3_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20hPXdLlPP9yD7DvFFDBM5yrTqxvcCiMfAsW1onD-2FcriL628eYdhNQE7bwzYrxcOYnmaYfRhGl-2FEHQ6eK2uQcLxs6Cbu6Dx0bYvpi5A6enmxMWU5TkcRYrP6Z8GbXZYtc5qSoKu6eWFBQR9K7fsjXwHMmby3D3X6Yx-2BxcDcdRruTG&amp;source=gmail&amp;ust=1727774368149000&amp;usg=AOvVaw2vK2ujS77CHs9VRvSSXzLC" href="https://link.mediaoutreach.meltwater.com/ls/click?upn=u001.IVvjJ-2BPT0A8C3VxtqKc6e3bj5hBuw27WFEYqovsYs7kPsgFulYrdOzeP8gI7CybJOya3_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20hPXdLlPP9yD7DvFFDBM5yrTqxvcCiMfAsW1onD-2FcriL628eYdhNQE7bwzYrxcOYnmaYfRhGl-2FEHQ6eK2uQcLxs6Cbu6Dx0bYvpi5A6enmxMWU5TkcRYrP6Z8GbXZYtc5qSoKu6eWFBQR9K7fsjXwHMmby3D3X6Yx-2BxcDcdRruTG" target="_blank">Canstar</a>, if there is a cut in February, a borrower with a $600,000 loan today and 25 years remaining would see their monthly repayments drop by $92.&nbsp;

<table border="1" cellpadding="0" cellspacing="0">
	<tbody>
		<tr>
			<td colspan="3">
			Impact of 0.25% pt cut in February 2025
			</td>
		</tr>
		<tr>
			<td>
			Current loan size
			</td>
			<td>
			Drop in monthly repayment
			</td>
			<td>
			New monthly repayment
			</td>
		</tr>
		<tr>
			<td>
			$600,000
			</td>
			<td>
			-$92
			</td>
			<td>
			$3,907
			</td>
		</tr>
		<tr>
			<td>
			$750,000
			</td>
			<td>
			-$114
			</td>
			<td>
			$4,884
			</td>
		</tr>
		<tr>
			<td>
			$1M
			</td>
			<td>
			-$153
			</td>
			<td>
			$6,512
			</td>
		</tr>
		<tr>
			<td colspan="3">
			Source:&nbsp;<a data-saferedirecturl="https://www.google.com/url?q=https://link.mediaoutreach.meltwater.com/ls/click?upn%3Du001.xWMOP9hChsvn-2BC9O-2FebBihXIZ4cEzbiuENdxm-2Bx3-2FYEEgYMhZlKWNj5Zzy1YZ56RuASD_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20v2akwr6-2BqLyRrlEgkJ4J-2BCCyY0x189xEHZA4Ylf8c7ChBqNIkhmftZzoFuZKFn43pw3oJVg2o1gumrpdA-2B7MB-2FBtmL2rFCI-2FXORATQHySCLVOMg7Vywv-2BqnnQUAtDz6XkvpwxdHFXh70VwKazzhJsICilEYOvP4ju0sIfi5g6TL&amp;source=gmail&amp;ust=1727774368149000&amp;usg=AOvVaw2qVnp6oqATgqDUi2Frm22q" href="https://link.mediaoutreach.meltwater.com/ls/click?upn=u001.xWMOP9hChsvn-2BC9O-2FebBihXIZ4cEzbiuENdxm-2Bx3-2FYEEgYMhZlKWNj5Zzy1YZ56RuASD_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20v2akwr6-2BqLyRrlEgkJ4J-2BCCyY0x189xEHZA4Ylf8c7ChBqNIkhmftZzoFuZKFn43pw3oJVg2o1gumrpdA-2B7MB-2FBtmL2rFCI-2FXORATQHySCLVOMg7Vywv-2BqnnQUAtDz6XkvpwxdHFXh70VwKazzhJsICilEYOvP4ju0sIfi5g6TL" target="_blank">www.canstar.com.au</a>. Starting rate is the RBA existing average owner-occupier variable rate of 6.36%. Assumes banks pass the cash rate cut on in full the month after the meeting.
			</td>
		</tr>
	</tbody>
</table>

Canstar Data Insights Director, Sally Tindall, says if core inflation continues to track in the right direction, or unemployment starts to accelerate significantly, we could well see a cash rate cut as early as February of next year.

“All four big banks now believe the RBA will be ready to cut the cash rate in just over four months’ time, if not before, in the case of CBA.

“However, the outlook for both inflation and unemployment is still highly uncertain. A couple of wobbly sets of inflation data could see the RBA holding for longer, particularly if unemployment remains relatively steady."

&nbsp;

Commonwealth Bank, the nation's largest lender, still thinks the first cut will come in December.

NAB bring forward first RBA cut to February 2025

<html><body>
GUEST OBSERVER
As had been widely expected the RBA left interest rates on hold at its February meeting.
This marks the ninth month in a row with the cash rate remaining at 2%.
While the RBA is less upbeat on the global economic outlook, particularly for emerging countries, and has acknowledged a further slide in commodity prices and reduced appetite for risk it seems more upbeat on the Australian economy at least in terms of information released over the last few months.
Inflation continues to be seen by the RBA as remaining low and it has also acknowledged slowing property price gains in Sydney and Melbourne.
While the RBA retained an easing bias on the back of the low inflation outlook, the balancing of more positive domestic developments against recent negative global developments clearly enabled it to remain on hold for now.
However, the RBA is clearly concerned about recent global and financial market developments and is waiting for more information in order to be able to judge its impact on global growth and the Australian economy.
Our view remains the RBA will cut interest rates again this year reflecting the risks around the global economy, weaker than expected commodity prices, still subdued growth in Australia at a time when the contribution from housing construction is slowing, a more dovish Fed threatening a higher Australian dollar and continued low inflation. 
However, this may not come till April or May.
However, whether there is another rate cut or not from the RBA, it’s hard to see rate hikes any time soon. 
So the period of low interest rates – with the cash rate at a record low and bank deposit rates at their lowest since the 1950s – is set to continue.
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.
</body></html>

soliver-smf6LQXgW9

No cash rate hike anytime soon: AMP Capital's Shane Oliver

<html><body>
GUEST OBSERVER
As expected, the Board of the Reserve Bank decided to leave the cash rate unchanged at 2.0% in February.
In a departure from recent practise the Governor highlighted the two key forces that will be most significant in the Board’s future decisions are: firstly, “whether the recent improvement in labour market conditions is continuing”; and secondly, “whether the recent financial turbulence portends weaker global and domestic demand”.
This is significant in that global market conditions have been elevated as important factors in the bank’s thinking.
However as indicated global volatility will be insufficient in its own right if there is no clear evidence of a feed through effect, particularly to domestic demand.
Measures of particular importance here will be consumer and business confidence.
To date the Bank notes that business conditions have moved to above average levels and we add that the recent 3.5% fall in the Westpac Consumer Sentiment Index, in response to market fluctuations, could well have been an over-reaction given the lack of other information available over the holiday period.
Certainly, to date the Bank appears to be gaining confidence around domestic economic momentum pointing out in today’s statement that: “the non mining parts of the economy strengthened during 2015”.
That compared with the December statement: “business surveys suggest a gradual improvement in conditions in non mining sectors over the past year.”
As we expected, the Board retained the moderate easing bias sentence: “Continued low inflation may provide scope for easier policy, should that be appropriate to lend support to demand”.
This is in fact somewhat stronger than the December statement which referred to “the outlook for inflation may afford scope ...” In fact, the commentary around inflation appears to recognise a lower inflation trajectory than indicated in December.
In December: “inflation is forecast to be consistent with the target over the next one to two years”. In today’s statement: “consumer price inflation is likely to remain low over the next year or two”.
The test of whether this wording is significantly different will come with the Bank’s inflation forecasts which are refreshed in February.
These forecasts will be released with the February Statement on Monetary Policy on February 5.
Our assessment has been that the Bank will retain the 2-3% inflation range in 2016 but there must be some doubt to this assessment based on the wording in the Governor’s statement today.
Other parts of the statement provided no surprises.
With the AUD having fallen from USD 0.73 to USD 0.71 since the December Board meeting it was expected that the Governor would continue to describe the currency as having “continued its adjustment to the evolving economic outlook”.
In December the housing market was described as: “the pace of growth in dwelling prices has moderated in Melbourne and Sydney over recent months”.
Despite a sharper than expected slowdown in prices in the last few months the description of the housing market remains the same.
In some recognition of the global volatility the Bank assesses that the global economy will grow “at a lower pace than earlier expected” highlighting weakness in emerging market economies including China.
Conclusion
Through all this market volatility and confident market pricing that RBA rate cuts could be expected as early as November last year Westpac has held the line that rates would remain on hold for the second half of 2015 and throughout 2016.
There is not enough in today’s statement for us to change that view.
In terms of the key issues highlighted by the Governor we do not expect to see a sustained continuation of current market volatility and certainly do not anticipate financial volatility substantially weakening domestic demand.
We do accept that recent job reports have run somewhat ahead of our expectations and anticipate a modest ( catch up) lift in the unemployment rate over the course of the next six months.
That development alone will continue to give markets hope that the RBA will cut rates further but we do not believe that the conditions will be there to drive that eventual result.
Bill Evans is chief economist of <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.
</body></html>

bevans-rYk9SxEa4r

Rates on hold through 2016: Westpac's Bill Evans

<html><body>
The RBA governor Glenn Stevens' statement from February 2016 board meeting.
At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.
Recent information suggests the global economy is continuing to grow, though at a slightly lower pace than earlier expected. While several advanced economies have recorded improved growth over the past year, conditions have become more difficult for a number of emerging market economies. China's growth rate has continued to moderate.
Commodity prices have declined further, especially oil prices. This partly reflects slower growth in demand but also very substantial increases in supply over recent years. The decline in Australia's terms of trade, which began more than four years ago, has therefore continued.
Financial markets have once again exhibited heightened volatility recently, as participants grapple with uncertainty about the global economic outlook and diverging policy settings among the major jurisdictions. Appetite for risk has diminished somewhat and funding conditions for emerging market sovereigns and lesser-rated corporates have tightened. But funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.
In Australia, the available information suggests that the expansion in the non-mining parts of the economy strengthened during 2015 even as the contraction in spending in mining investment continued. Surveys of business conditions moved to above average levels, employment growth picked up and the unemployment rate declined in the second half of the year, even though measured GDP growth was below average. The pace of lending to businesses also picked up.
Inflation continues to be quite low, with the CPI rising by 1.7 per cent over 2015. This was partly caused by declining prices for oil and some utilities, but underlying measures of inflation are also low at about 2 per cent. With growth in labour costs continuing to be quite subdued as well, and inflation restrained elsewhere in the world, consumer price inflation is likely to remain low over the next year or two.
Given these conditions, it is appropriate for monetary policy to be accommodative. Low interest rates are supporting demand, while regulatory measures are working to emphasise prudent lending standards and so to contain risks in the housing market. Credit growth to households continues at a moderate pace, albeit with a changed composition between investors and owner-occupiers. The pace of growth in dwelling prices has moderated in Melbourne and Sydney over recent months and has remained mostly subdued in other cities. The exchange rate has continued its adjustment to the evolving economic outlook.
At today's meeting, the Board judged that there were reasonable prospects for continued growth in the economy, with inflation close to target. The Board therefore decided that the current setting of monetary policy remained appropriate.
Over the period ahead, new information should allow the Board to judge whether the recent improvement in labour market conditions is continuing and whether the recent financial turbulence portends weaker global and domestic demand. Continued low inflation may provide scope for easier policy, should that be appropriate to lend support to demand.
</body></html>

po-LsXgBTHBmX

Moderating dwelling price growth: RBA Governor Glenn Stevens' February 2016 statement

<html><body>
The RBA cash rate decision came out at 2.30 today with the decision to hold rates. The bank's last move saw it go to 2 per cent at the May 2015 meeting.
Today’s decision to keep the cash rate unchanged came as no surprise.
Mortgage Choice chief executive officer John Flavell said today’s decision by the Board was ‘unsurprising’.
Tim Lawless, CoreLogic RP Data head of research, said there were plenty of reasons why the RBA may have contemplated cutting the cash rate today.
He noted however the housing market was playing out exactly as the RBA probably would have hoped:  losing steam without a collapse in values. 
"The last three months have seen capital city dwelling values drift 0.6% lower and capital city home values are up by only 0.7% over the past six months."
"The RBA probably doesn’t need to worry too much about over stimulating the housing market via another rate cut; mortgage rates are already higher than a year ago due to the higher capital requirements implemented by APRA and the pace of investment growth has fallen below APRA’s 10% speed limit imposed in December 2014.  
"With heat in the housing market no longer likely to be a major concern for the RBA, a major obstacle has been removed from preventing rate cuts and we may see the cash rate move lower later in the year," Lawless said.
Laing+Simmons managing director Leanne Pilkington said she hoped the banks follow the RBA’s lead and keep their rates steady too.
“Certainly there’s no genuine impetus for the majors to move independently, aside from greed,” she said.
 
</body></html>

RBA holds interest rates at 2 percent at February 2016 meeting

<html><body>
John Symond, executive chairman of Aussie Home Loans, says the RBA was unlikely to raise rates today particularly given the volatility of global equity markets.
I think central banks around the world will be very very careful in what they do with interest rates," he told Ross Greenwood's Money News radio program.
Ross Greenwood asked him whether the backdrop for banks to have more capital and restrict lending could mean higher rates, John Symond replied by saying that that's been the talk for probably the past three or four months.
"It would not surprise me if over the next few months that the banks creep up their lending rates, but I don't think they'll go through the roof."
"They may go up another 0.1 or 0.15 but at the moment I think consumers want every bit of help they can get to give them that bit of confidence."
The impact the RBA and the banking regulators limit in the growth the number of investment property loans had been significant when it came to on the hotter markets in Melbourne and Sydney last year.
"It has had a huge impact," Symond noted.
"I can tell you just from our own business that the amount of loans to investors has fallen significantly and has dampened the enthusiasm for investors to get in."
"It's not like investors are lining up and saying will you lend us some money, they've tended to fall away."
"The APRA moves to curtail investor lending has certainly been effective."
Ross Greenwood asked John Symond's point of view, despite his number of loans decreasing, whether he felt if it is a good thing so the prices didn't race out of control.
"I think all in all the market has accepted it in a pretty positive way and prices are continuing is levelling off," he said.
"I'm not one to not want price increases to be as sharp as they have been."
"The property market is levelling out and becoming a more healthy market."
<a href="https://www.propertyobserver.com.au/https://www.2gb.com/audioplayer/151441" target="_blank">The full interview can be heard here.</a>
</body></html>

jchancellor-FAypfDUnLy

Not through the roof, but John Symond thinks banks might raise rates

<html><body>
<h3>The RBA shadow group suggest that despite the turmoil in global markets, a rate hold is still the best policy.</h3>
People who invested in shares have not had a good start to the new year.
Global stock markets have seen falls of more than 15 percent in some places as investors worry about slow growth in China.
The Australian share market losses are slightly more modest but the Australian dollar has been caught in the maelstrom, temporarily trading as low as 69 US¢.
Unemployment is steady, while inflation in the December quarter edged up to 1.7 percent, from 1.5 percent in the previous quarter and remains below the RBA's target band of 2-3 percent.
Latest figures estimate GDP growth at 2.5% annualized, a slight improvement over the previous quarter.
 
What the CAMA RBA Shadow Board believe
 
The CAMA RBA Shadow Board on balance prefers to keep the cash rate on hold, attaching a 69% probability to this being the appropriate policy setting.
The confidence attached to a required rate cut equals 17%, down five percentage points from the previous month, while the confidence in a required rate hike has risen to 14%.
Australia’s unemployment, according to the Australian Bureau of Statistics, is steady at 5.8%.
Employment has barely budged, though there has been an increase in full-time employment accompanied by an offsetting decrease in part-time employment.
Even though the participation rate is down to 65.1%, the labour market, at least for moment, appears robust.
After pausing around the 72 US¢ for some time, the Aussie dollar has depreciated further, briefly falling to as low as 69 US¢.
It now trades above 70 US¢ again. A further weakening of the international and domestic economies may see the Aussie dollar decline further.
Yields on Australian 10-year government bonds have fallen again, most recently to 2.69%, pointing to weakness in the Australian economy.
Globally, the economic outlook is weakening. Even though the US Federal Reserve raised the federal funds rate during its last FOMC meeting of 2015, the rest of the world is teetering.
Global share markets, led by China, suffered big losses in the opening weeks of the new year.
Increasingly cracks are showing in emerging market economies, following excessive debt levels and plummeting commodity prices.
Consequently, an estimated $740 billion (net) flowed out of emerging markets in 2015, most of it leaving China.
Further capital flight is likely, and there is a genuine risk that some countries and some financial institutions will be in serious financial difficulties.
Overall, global growth is likely to be sluggish, a view shared by the International Monetary Fund, which recently dropped its growth forecast for the world in 2016 from 3.6% to 3.4%.
Consumer and producer sentiment measures are pointing South.
The Westpac/Melbourne Institute Consumer Sentiment Index fell from 101 in December 2015 to 97.3 in January.
Business confidence, according to the NAB business survey, after a brief blip up, fell again from 5 to 3.
The AIG manufacturing and services indices, leading economic indicators, both fell.
The Shadow Board’s confidence that the cash rate should remain at its current level increased marginally, from 67% in December to 69%.
The confidence that a rate cut is appropriate has dropped for the second time in a row and now equals 17% (22% in December); the confidence that a rate increase, to 2.25% or higher, is necessary has risen to 14% (11% in December).
The probabilities at longer horizons are as follows: 6 months out, the estimated probability that the cash rate should remain at 2% is nearly unchanged at 24% (23% in December).
The estimated need for an interest rate increase is unchanged at 60%, while the need for a rate decrease has slipped to 16% (17% in December).
A year out, the Shadow Board members’ confidence that the cash rate should be held steady edged up a percentage point, from 18% to 19%, while the confidence in a required cash rate increase equals 66% (67% in December) and in a required cash rate decrease 16% (unchanged from December).
To access the comments made by the RBA Shadow board <a href="https://cama.crawford.anu.edu.au/sites/default/files/outcome/attachments/2016-01/shadow_board_comments_february2016.pdf" target="_blank">click here</a>
 
</body></html>

Turmoil in global markets causing headaches: RBA Shadow Board

<html><body>
GUEST OBSERVER
Australia’s economy is showing considerable resilience in the face of falling commodity prices and China’s slowdown.
Growth is rebalancing away from mining to housing and services, supported by low interest rates and a lower AUD.
Loose financial conditions are expected to support further solid, albeit below average, growth of 2.6% in 2016, while low inflation leaves room for another RBA cut, now expected in 2Q.
More rebalancing ahead 
 Commodity prices have fallen to a 12-year low, China’s growth has slowed, global trade has been anaemic and yet, Australia’s domestic activity indicators have been lifting. Local jobs growth has picked up, business conditions have been at seven-year highs and consumer sentiment has been rising. Why?  The answer is: Australia’s growth is rebalancing. How is this possible? Well, first, the mining sector is only 10% of the economy, so its influence is not as pervasive as is often thought. Second, Australia is the lowest cost producer of iron ore and has long-term contracts to sell LNG, so export volumes are still ramping up. 
Third, when the mining boom was strong, much of the rest of the economy was held back by tight financial conditions, which meant that there has been significant scope for a pick-up in the non-mining sectors in response to loosened financial conditions: low interest rates have driven a housing boom and the lower AUD has lifted net services exports.  2016 is set to see a continuation of this rebalancing theme. Mining investment is set to fall again, while resources export volumes rise further, driven by new LNG projects ramping up production. The housing boom, which had been the first stage of the rebalancing act, appears to be cooling, but the services sectors have now taken the ‘growth baton’ and are driving job creation. Australia’s trade connections to Asia are set to continue to broaden beyond resources, to services and agricultural products.  Low inflation means the RBA has scope to cut further, although financial stability concerns are making it reluctant. Our central view has another cut, now in 2Q (previously 1Q). However, a tangible fall in the AUD could obviate the need for it. We believe policymakers should be focused on structural and budgetary reform in the lead up to this year’s Federal election (likely to be in September or October). The clearest downside risk is a sharp downturn in China. However, this would now probably need to have a significant impact on Chinese households, and their willingness to buy Australian services and assets, to see a significant local downturn. 
 
Housing boom is cooling, but a soft landing is expected
 
Following rapid growth in Sydney and Melbourne housing prices, which are up 46% and 32%, respectively, over the past four years, there are now some signs that these housing markets are cooling (Chart 13 and 14). We expect national housing price growth to slow to 3-4% in 2016, down from 10% in 2015.
<a href="/images/2016/01/20/Screen%20Shot%202016-01-20%20at%2010.44.42%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/20/Screen%20Shot%202016-01-20%20at%2010.44.42%20AM.png" alt="">
 
The slowdown is expected to be driven by tighter lending standards that have been imposed by the prudential regulator, recent mortgage rate increases by the major banks (in response to higher capital requirements), some reduction in housing affordability due to the recent ramp up in housing prices, and a ramp up in housing supply, due to the recent residential construction boom. 
The residential construction ramp up has helped to reduce a previously accumulated housing undersupply (Chart 15). Our estimates suggest the national market will still have an undersupply until 2017, although this aggregate hides pockets of potential oversupply in areas such as the Melbourne and Brisbane apartment markets. 
<a href="/images/2016/01/20/Screen%20Shot%202016-01-20%20at%2010.45.45%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/20/Screen%20Shot%202016-01-20%20at%2010.45.45%20AM.png" alt="">
The slowdown in housing price growth and construction means that these are expected to contribute less to GDP growth in 2016, although we still expect a positive contribution from construction (Chart 16). There is also likely to be a lagged wealth effect from the previous housing price gains that could support some spending (via reduced household savings).
Although we expect the housing boom to cool in 2016, we expect national housing prices and construction to maintain modest positive momentum, supporting GDP growth.
<a href="https://www.about.hsbc.com.au/hsbc-in-australia/management-team" target="_blank">Paul Bloxham</a> is chief economist (Australia and New Zealand) for HSBC.
 
</body></html>

RBA has scope to cut further: HSBC's Paul Bloxham

<html><body>
GUEST OBSERVER
After much delay and much warning the Fed has finally raised the Fed Funds rate from a range of 0-0.25% to 0.25-0.5%. The move signals confidence in the ongoing recovery in the US economy after the GFC.
Given ongoing deflationary risks and slow global growth future Fed hikes are likely to be cautious and gradual.
With the Fed decision out of the way, global shares are likely to resume their rising trend but with US shares as a relative underperformer.
Bond yields are likely to remain low which should b positive for real assets.
Rising US interest rates will help maintain downwards pressure on the value of the $A through 2016.
In the most anticipated and hotly debated interest rate decision ever the US Federal Reserve has opted to raise its Federal Funds target interest rate from a range of 0-0.25%, where it’s been for the last seven years, to the range of 0.25-0.5%.
<a href="/images/2015/12/16/Screen%20Shot%202015-12-17%20at%2011.39.29%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/12/16/Screen%20Shot%202015-12-17%20at%2011.39.29%20AM.png" alt="">
 
The move is hardly a surprise. The Fed has been talking about a rate hike ever since ending quantitative easing over a year ago. After being delayed in June and September, due to a combination of soft US data and financial market turmoil, the Fed has given ample warning recently of a December hike provided there were no unanticipated shocks and that economic data is consistent with further labour market improvement and confidence that inflation would rise. In the absence of any major shocks and with US economic data mostly favourable, the US money markets had effectively moved to price in the tightening.
 
More importantly the move should be seen as a “dovish hike” in that while the Fed has hiked the commentary around it was relatively dovish with the Fed indicating that it expects future increases in the Fed Funds rate to be “gradual” and dependent upon further “actual and expected progress towards” its inflation goal of 2%. Federal Reserve officials also lowered their median expectation for the Fed Funds rate (known as the “dot plot”) for end 2017 from 2.625% to 2.375%.
At its core the Fed's move is positive as it signals that the US economy is strong enough to be further taken of the life support that has been in place since the global financial crisis (GFC).
Against this though it’s understandable for investors to be wary as they have become used to zero interest rates for so long.
Why the hike?
The reasons for the hike are simple.
The extraordinary monetary easing since the GFC (zero interest rates and three rounds of quantitative easing) have done their job in seeing off the risk of a depression and returning US growth to reasonable levels. Jobs are now well up on pre GFC levels, unemployment is down to 5%, confidence is up, the housing sector has recovered and business is investing. And since inflation normally turns up with a lag after the jobs market has improved the Fed feels there is a strong argument to get going now.
<a href="/images/2015/12/16/Screen%20Shot%202015-12-17%20at%2011.42.22%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/12/16/Screen%20Shot%202015-12-17%20at%2011.42.22%20AM.png" alt=""> 
What does it mean for investment markets?
There are several reasons not to be too concerned about the Fed’s shift to a tightening cycle:
First, and perhaps most importantly the rate hike is a sign that the world’s biggest economy is getting back to normal after the havoc of the GFC. This is a good news.
Second, US economic downturns/recessions have historically only come three years after the first Fed rate hike in a tightening cycle. In fact, recession did not come for seven years after the February 1994 first hike and for three and a half years after the June 2004 first hike. This is because the first rate hike only takes monetary policy from very easy to a bit less easy and it’s only when monetary policy becomes tight after numerous rate hikes that the economy gets hit. This is often signalled by long term bond yields falling below short term interest rates. And we are a long way from that.
So while there can be share market wobbles around the first Fed rate hike after major easing cycles – just as we have seen this year – sustained problems usually only set in when monetary policy has become tight. This can be seen in the next chart. Shares had wobbles when interest rates first started to move up in February 1994 (US shares had a 9% correction at the time) in June 2004 (US shares had a 8% correction at the time) but thereafter they resumed their rising trend and a bear market did not set in till 2000 and 2007 after multiple hikes and with recessions looming.
<a href="/images/2015/12/16/Screen%20Shot%202015-12-17%20at%2011.44.38%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/12/16/Screen%20Shot%202015-12-17%20at%2011.44.38%20AM.png" alt="">
 
Third, other major countries – Europe, Japan, China and Australia – are still easing or are at least a long way from monetary tightening. So global monetary conditions will remain very easy which is positive for growth assets.
Fourth, while US shares are expensive on some measures after having outperformed since the GFC other share markets are relatively cheap. This is not 2000 or 2007.
Fifth, fears around an ever surging US dollar reaping havoc on US multinationals, commodity prices and emerging countries (via potential debt servicing problems) are overdone. For one thing despite widespread views to the contrary the relationship between US interest and the US dollar looked at on a trade weighted basis is rather messy.
<a href="/images/2015/12/16/Screen%20Shot%202015-12-17%20at%2011.45.48%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/12/16/Screen%20Shot%202015-12-17%20at%2011.45.48%20AM.png" alt="">
The $US actually fell through the Fed rate hike cycles of 1994-95 and 2004-06. In fact, the 20% rise in the value of the $US over the last two years could turn out to be a case of “buy on the rumour/sell on the fact”, to the extent it’s anticipated the Fed. What’s more the Fed is not oblivious to the $US as its gain over the last year is akin to around 150 basis points of US interest rate hikes in terms of bearing down on growth and inflation so it’s been doing the Fed’s job for it. 
So the rising $US will likely constrain the Fed, which in turn will limit upside in the $US itself.
Finally, and related to this, the Fed is likely to be gradual.
The experience this year with further global growth disappointment, falling commodity prices and falling/low inflation highlights that deflation remains a greater risk than inflation. As a result Fed rate hikes are likely to be very gradual and closer to market expectations for the Fed Funds rate to rise to 1.1% by the end of 2016 and 1.6% by end 2017 than the Fed’s median “dot plot” expectations for 1.375% by end 2016 and 2.375% by end 2017. This means that easy US monetary policy will likely be with us for some time. 
Combined with still ultra easy/easing monetary policy in other major countries, this suggests that bond yields are likely to remain low with any rise being very gradual.
In summary, with the Fed’s decision out of the way and future rate hikes likely to be gradual:
Shares are likely to resume their rising trend but with US shares being a relative underperformer. I find it hard to get bullish on emerging market shares generally but that has more to do with their own structural problems than the Fed.
Real assets like commercial property and infrastructure are likely to benefit from ongoing low bond yields and the search for yield.
Bonds are likely to offer constrained returns reflecting low yields, but a sharp sell-off is unlikely in the absence of a much more aggressive Fed.
Risks
While past experience suggest little reason to be too concerned by the first US rate hike, there are a few risks. In particular: the Fed is still underachieving on its inflation objective; global growth is still fragile and if the Fed’s rate hike does put more pressure on the value of the $US, the Fed may have made life more difficult for emerging countries; the combination of lower energy prices and higher US interest rates has led to an intensification of stress in the US credit market, as highlighted by some mutual funds that invest in junk bonds freezing redemptions (something certainly worth keeping an eye on).
There is long list of countries that have raised interest rates since the GFC – including Europe and Australia – only to cut them again. Japan had a similar experience in the 2000s. So there is always a risk the Fed may have made a similar mistake.
But the Fed does have the flexibility to keep its Fed Funds rate at the low end of its new range which would mean hardly any effective interest rate increase anyway. More importantly, most of these considerations simply reinforce the argument for the
Fed to be cautious and gradual in raising interest rates. Its commentary – and common sense – suggest it will be.
Impact on Australia
To the extent that the Fed’s interest rate hike signals a stronger US economy its good news for Australia. It doesn’t signal that higher Australian interest rates are on the way though.
Australian rates often follow the big swings in US rates, but in recent times they have diverged. With the Australian economy on a weaker trajectory relative to its potential than the US economy, the RBA will not be following the Fed into a rate hike.
In fact, the odds remain that the RBA will have to cut again as the mining boom continues to unwind, the contribution to growth from housing starts to peak next year and inflation remains low.
The main relevance of the US rate hike is what it means for the $A. With the Fed undertaking a dovish rate hike there is a risk that a further fall in the $A will be further delayed. But as the Fed undertakes more albeit gradual rate hikes next year, the RBA retains an easing bias and commodity prices remain weak the trend in the $A is likely to remain down with it heading to around $US0.60 sometime in the next 12 months.
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.
</body></html>

US Federal Reserve raises interest rates: AMP Capital's Shane Oliver

<html><body>
The financial literacy of some first home buyers (FHBs) is a matter of concern, according to a recent survey.
According to Mortgage Choice’s annual First Home Buyer Survey, 18.3% of first time buyers didn’t know banks can move rates independently of the central bank.
"It is clear there is more work to be done to help improve the financial literacy of Australians. Anyone planning to get their foot on the property ladder needs to understand the role and power financial institutions have on the rise and fall of interest rates,” said Mortgage Choice chief executive John Flavell.
“Buying property is one of the biggest financial commitments a person will ever make, so future first home buyers need to know exactly what they are getting themselves in for when taking on a mortgage."
The survey also found the majority of potential first time buyers are concerned about rates rising independently of the Reserve Bank, with more than half (57.5%) of Australians surveyed planning to purchase property in the next two years "very concerned" or "somewhat concerned" about lenders moving interest rates independently of decisions made by the central bank.
Many lenders, including the Big Four -- Westpac, CBA, NAB, ANZ -- lifted their variable rates independently of the RBA in October by an average of 18 basis points.
One basis point is one-hundredth of a percentage point.
For your free Property Observer eBook from RAMS, 12 tips for first-time buyers, covering everything you need to know when it comes to purchasing property, click here.
</body></html>

j.ballantyne1990-6AQqhLzZaK

One in five first home buyers don't know banks can act independently on interest rates: survey 

<html><body>
Delinquency and default rates for Australian residential mortgage backed securities (RMBS) and asset backed securities (ABS) will rise slightly from their current low levels in 2016, due to slower economic growth and a rise in unemployment, says a recent report by Moody's Investor Service. 
The credit quality of the mortgage collateral for new RMBS issued in 2016 will deteriorate when compared with 2015, the report says, due to the inclusion of a greater proportion of riskier housing investment and interest-only (IO) loans and mortgages originated during a period of low interest rates and rapidly rising house prices.
The report noted investment and IO loans are riskier than owner-occupier and principal and interest (P&amp;I) loans because they have higher loan-to-value (LTV) ratios, a key default driver.
Additionally, IO loans amortise slower compared with P&amp;I loans, if at all, and therefore build equity at a slower rate, resulting in a higher loss upon default.
The analysts at Moody's also expect more RMBS deals to reduce their dependence on lenders' mortgage insurance (LMI) policies in 2016. 
Australian RMBS delinquencies and defaults will rise slightly from their current low levels in 2016, due to economic growth that will be below the long-term trend, an uptick in unemployment, and a slower pace for house price growth in some cities, it said.
Housing prices, particularly in Sydney and Melbourne, are expected to slow which will mean a slowdown in economic activity which will contribute to an increase in RMBS delinquencies and defaults in 2016, the note said.
Any weaker housing market also means borrowers at risk of default are less able to sell their houses quickly at prices sufficient to fulfil their repayment obligations.
</body></html>

Latest Finance Insights

NAB bring forward first RBA cut to February 2025

Editor's Picks

Developments

New apartments

New townhouses

News

Latest Finance Insights

NAB bring forward first RBA cut to February 2025

Editor's Picks

Receive the latest news stories to your inbox

Developments

New apartments

New townhouses

News